B-134347, MAR. 1, 1966

B-134347, MAR. 1, 1966

TO MR. T. OTAKE, PRESIDENT, HAWAII RENT A CAR SYSTEM, LIMITED:

YOUR LETTER OF JANUARY 20, 1966, AND ENCLOSURES, CONCERN THE HAWAII GROSS INCOME TAX.

YOU STATE THAT YOUR COMPANY HOLDS TWO CONTRACTS WITH THE GENERAL SERVICES ADMINISTRATION (GSA) FOR COMMERCIAL CAR RENTALS IN HONOLULU AND THAT YOU HAVE BEEN ADDING THE STATE OF HAWAII GROSS INCOME TAX ON BILLINGS FOR CARS RENTED BY GSA. THE TAX WAS ADDED BECAUSE YOU WERE INFORMED BY THE TAX OFFICE OF THE STATE THAT SERVICES SUCH AS CAR RENTALS ARE NOT EXEMPT FROM THE GROSS INCOME TAX, WHETHER SUCH RENTALS ARE TO THE FEDERAL, STATE, CITY OR COUNTY GOVERNMENTS.

YOU STATE THAT ON AUGUST 20, 1965, YOU WERE ADVISED BY THE REGIONAL COUNSEL OF GSA AT SAN FRANCISCO THAT THE GROSS INCOME TAX SHOULD NOT HAVE BEEN PAID BY THE FEDERAL GOVERNMENT. YOU ADVISE THAT IN LIGHT OF OUR DECISION OF MAY 16, 1958, B-134347, 37 COMP. GEN. 772, YOU WERE OF THE OPINION THAT THE HAWAII GROSS INCOME TAX COULD BE ADDED TO THE CAR RENTAL AMOUNTS. YOU REFER SPECIFICALLY TO THE FOLLOWING LANGUAGE IN OUR DECISION.

"* * * WHERE THE INCIDENCE OF THE TAX IS ON THE VENDOR, THE UNITED STATES HAS NO RIGHT--- APART FROM STATE (OR TERRITORIAL) STATUTES OR REGULATIONS PROMULGATED THEREUNDER BY STATE (OR TERRITORIAL) AUTHORITIES--- TO PURCHASE SUPPLIES OR SERVICES WITHIN THE TERRITORIAL JURISDICTION OF THE STATE (OR TERRITORY) ON A TAX FREE BASIS. * * *"

ON SEPTEMBER 1, 1965, YOU WERE AGAIN INFORMED BY THE GSA REGIONAL COUNSEL THAT THE GOVERNMENT SHOULD HAVE PAID NO AMOUNTS (FOR TAXES) IN ADDITION TO THE CONTRACT PRICES. SUBSEQUENTLY YOU RECEIVED A BILL FROM GSA IN THE SUM OF $806.74 COVERING REFUNDS DUE THE GOVERNMENT FOR THE AMOUNTS OF GROSS INCOME TAX PAID BY THE GOVERNMENT (APPARENTLY OVER AND ABOVE THE CONTRACT PRICES). YOUR COMPANY PAID THIS AMOUNT UNDER PROTEST.

YOU STATE THAT WHEN YOU BID FOR THE CONTRACTS NO AMOUNT FOR SUCH TAX WAS INCLUDED IN THE CONTRACT (BID) PRICE, AS A CONTINGENCY RESERVE OR OTHERWISE; AND THAT YOU HAVE BEEN PAYING THE GROSS INCOME TAX ON ALL GSA RENTALS AS REQUIRED BY THE STATE TAX OFFICE BUT THAT THE GSA REGIONAL COUNSEL HAS TAKEN THE POSITION THAT THE TAX MAY NOT BE ADDED TO THE CAR RENTALS.

YOU REQUEST THAT WE CLARIFY THE MATTER AS SOON AS POSSIBLE.

AS INDICATED IN YOUR LETTER, THE ABOVE-QUOTED STATEMENT WAS MADE IN OUR DECISION OF MAY 16, 1958. HOWEVER, NOTWITHSTANDING THAT THE GOVERNMENT MAY NOT BE IMMUNE FROM THE TAX IN QUESTION, WHETHER THE UNITED STATES MUST REIMBURSE A CONTRACTOR FOR A STATE TAX IMPOSED ON THE CONTRACTOR ON ACCOUNT OF A SALE TO THE UNITED STATES, DEPENDS ON THE CONTRACT INVOLVED. WHERE THERE IS IN EXISTENCE A VALID AND BINDING CONTRACT COVERING THE FURNISHING OF SUPPLIES AND SERVICES AT FIXED PRICES THERE WOULD BE NO AUTHORITY FOR THE PAYMENT OF ANY TAXES OVER AND ABOVE THE PRICES STIPULATED IN THE CONTRACT, ABSENT A PROVISION IN THE CONTRACT SO PROVIDING.

ONE OF THE CONTRACTS INVOLVED HERE COVERED THE PERIOD AUGUST 1, 1964 TO JULY 31, 1965, AND THE OTHER CONTRACT COVERS THE PERIOD AUGUST 1, 1965 TO JULY 31, 1966. THE ENCLOSURES WITH YOUR LETTER INDICATE THAT THE EXPIRED CONTRACT PROVIDED THAT THE CONTRACT PRICE INCLUDED ALL "STATE AND LOCAL TAXES AND DUTIES IN EFFECT AND APPLICABLE TO THIS CONTRACT," AND THAT THE OTHER CONTRACT (WHICH IS STILL IN EFFECT) PROVIDES THAT THE CONTRACT PRICE INCLUDES ALL APPLICABLE STATE AND LOCAL TAXES AND DUTIES.

YOUR FAILURE TO INCLUDE THE TAX WOULD NOT ENTITLE YOU TO ADD THE TAX TO THE CAR RENTAL PRICES SET FORTH IN THE CONTRACTS. ACCORDINGLY, THERE WOULD BE NO LEGAL BASIS FOR THE GOVERNMENT REIMBURSING YOUR COMPANY THE AMOUNT ($806.74) OF HAWAII GROSS INCOME TAXES IT REFUNDED TO GSA UNDER PROTEST; OR FOR AUTHORIZING YOUR COMPANY TO ADD SUCH TAX TO THE CAR RENTAL PRICES SET FORTH IN THE EXISTING CONTRACT.